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Monday, 24 September 2012

Let me begin by congratulating you on your latest set of reforms and also your new resolve for
reforms. I am 100% behind you on both aspects.

I think the address to the nation was also a good move and long overdue, and once again I am
in complete agreement with whatever you did say. However, I have some objections about the
things you did not.

You asked the Indian public to persever and accept the price hikes due to the deficit. You asked
the public not to get influenced by the lies spread for political reasons. You asked people to trust
you and support you to get through these trying times. All of these are reasonable requests, but
they are too late.

If you had made this same address two years ago, it would have been met with
cheers and the whole hearted support of the people. But now, your government, Sir, has lost it’s
credibility. What did you do to adress that?

It is obvious that there is a lot more corruption embedded in our system then what is covered
in the media. While ideally I would expect you to own up and apologise for it all, the least you
could have done is apologise for the ones that have already been proven.

You should have apologised that under your rule the CWG and 2G scandal took place. You should
have apologised for the fact that the coal mines were not effectively developed and utilised. You
should have apologised that after 8 years of your rule, India once again faces the crisis which you
compared to the one in 1991.

None of these apologises would have revealed any new damning evidence against your government.
They have already been comprehensively proven and your government has already been blamed
for them. While you may not have been personally involved in those scandals, they did happen
under your rule and you should have owned up to your responsibility. Addressing these issues
would have helped the public believe that you have turned over a new leaf.

Personally, I take offence that these issues were not clarified before you dived into your requests.
The old air must be cleared. A good leader gives before he takes. Don’t treat us like fools who
would not understand. Give us respect and we will return the favour.

Me: Good evening Mr. Sibal. So glad you could join us for the ‘Tonight
Show’ !

Kapil Sibal: I’m happy to be here.

Me: Lets get right into it, sir. Don’t you think that the Supreme Court
and the CAG are clearly overstepping their mandate? What is their business
deciding policy for the government?

Kapil Sibal: Well it is arguable. What you say is valid, but one must also question why
these bodies have begun doing this now? The mal-practices in the allocations have become
evident, both from the CAG report and the CBI investigations. When the executives leave
such a gap in their work, it’s only natural that the other wings will fill up the vacuum.
Thus is the nature of democracy.

Me: That is interesting. You seem to be defending them while much of the
newspapers and politicians are attacking them.

Kapil Sibal: This is a failure of the media and our leaders. How is it that the scandal
is being side-stepped and the mandate of the CAG is being discussed more frequently?
Even if CAG has overstepped the mandate, what affects our country more, their supposed
marginal invasion, or the fact that private enterprises, politicians and their relatives are
minting money? It is a clear failure in prioritising.

Me: But saying that auctions must be held for all natural resource distribution
is absurd! What if they start demanding that your Aakash tablet should be
auctioned as well?

Kapil Sibal: Don’t be silly! The Supreme Court’s judgement clearly said natural resources. Is Aakash a natural resource? But even more importantly, I think there is a
fundamental difference between when the government is dealing with the end consumer
directly, and when they are dealing with an intermediary. When we are executing the
former, we have a target population with clearly defined characteristics (such as wage,
location etc) to whom we provide the goods in a non-discriminatory fashion. However,
in the latter case, we are selecting some people out of a many and allowing them to use
it for commercial purposes. How can you compare these two things?

Me: You make a fair point, sir. But still, isn’t the Supreme Court’s verdict
to extreme? They say always use auction. Surely there is a need to leave
some room for discretionary allocation..?

Kapil Sibal: Your two statements are not mutually exclusive. All the Supreme Court
has said is that the method of auctions should be utilised. The design of the auction is
left at the discretion of the Government and it’s executives. The government can put up
clearly defined criteria that all prospective bidders must meet to take part in the auction
or they could set-up conditions that all parties must accept after winning the bid. The
point is that these guidelines should be clear and standardised so that all members in
society, who qualify, get an equal opportunity to win the bid. This will ensure that the
best candidate wins.

The fact is that auction is the only method, maybe besides a lucky draw system, that enables a completely non-arbitrary and fair allocation. Adding any form of arbitrariness
will inevitably lead to corruption as the potential to make money in these industries are
huge.

Me: But what happens when the prices increase for the end consumer due to
the auctioning of the natural resources?

Kapil Sibal: That is a fair concern. However it is not being addressed correctly. We
should not be saying, “the prices may rise, hence auction is not the right way.” Instead
we should be asking, “how can we ensure the welfare of the consumer while keeping
auctions, the most appropriate allocation mechanism.” Unfortunately no one seems to
be asking that.

Me: Well let me be the first. How can we ensure the welfare of the consumer
when using auctions?

Kapil Sibal: There are numerous ways. But lets start with the basics.

Prices rise when there is less competition in the industry. A monopoly can set whatever
price it may choose, as it knows that the consumers have no other option but to go to
them. By increasing competition we give the consumers a choice and will force companies,
which are trying to increase their market share, to decrease their prices.

If enough competition can be generated, by that I mean perfect competition, then the
marginal cost of producing the service or good will be the price that the consumer will
pay. However this is an ideal scenario and highly unlikely. But the closer we can get to
this, the better it will be for consumers.

Me: But how will the investors cover up the money they have invested then?

Kapil Sibal: In a perfect competition, they cannot. But as I said, that is highly impractical. The companies will differentiate their products and try to keep some margins for
profits. All competition will do is reduce those margins.

Me: But won’t this kill the industry? Who will want to enter when they
cannot make any profits?

Kapil Sibal: No it won’t. Bidders must compute what margins they will be able to
maintain, and thus the profits they will make over the marginal cost. Keeping this figure
in mind they must bid for the natural resource. People who overpay will eventually have
to change their business model and swallow the loss, or sell the resource to someone else
who can sustain a business. These are standard market dynamics.

Me: So you are saying it is all about making sure there is competition. But what
happens when such competition cannot be generated? Like in telecom for
example, there are only a few players out there.

Kapil Sibal: Yes, that can be an issue. But tell me, where is the money going? It is
going to the government. If the government is concerned about the welfare of the telecom
consumers, they can provide subsidies to lessen the burden for the consumer. In fact,
using this approach, you can target the subsidy for those who most need it.

Me: But why create this elongated process of money first being given to the
government and then being transferred to the public, when instead the same result can be achieved by handing out the spectrum for free?

Kapil Sibal: If you hand out the spectrum for free, how do you decide who deserves to
get it? You have once again come back to the arbitrary mechanism which simply won’t
work.

As far as the need for the elongated process is concern, let us see who benefits how much
from the ‘free allocation’ as you suggest.

A rich man will use his phone excessively and will be benefitted by the low prices more
than a poor man. And what about the people who do not use phones at all? They are as
much citizens of this country but do not benefit from the use of natural resources at all!

Now the two alternative methods are targeted subsidies or direct cash transfers. The tar-
get subsidy approach ensures that the poor receive the benefit, while direct cash transfers
will include the people who do not use mobiles.

Me: So you’re saying auction is the way forward?

Kapil Sibal: Churchill once said: “it has been said that democracy is the worst form of
government except all those other forms that have been tried from time to time.” The
same principles apply here. Although auctions have their short comings too, it is the
best mechanism we have for now.